One of the cheapest stocks in our Large Cap 1000 Stock Screener is Louisiana-Pacific Corporation (NYSE: LPX).
Louisiana-Pacific Corporation (Louisiana-Pacific), together with its subsidiaries, manufactures building products primarily for use in new home construction, repair and remodeling, and outdoor structures, as well as light industrial and commercial construction applications. It operates through four segments: Siding; North America Oriented Strand Board (OSB); Engineered Wood Products; and South America.
A quick look at Louisiana-Pacific’s share price history below over the past twelve months shows that the price is up 7%, but here’s why the company remains undervalued.
(SOURCE: GOOGLE FINANCE)
The following data is from the company’s latest financial statements, dated March 2018.
The company’s latest balance sheet shows that Louisiana-Pacific has $896 Million in total cash and cash equivalents. Further down the balance sheet we can see that the company has $25 Million in short-term debt and $351 million in long-term debt. Therefore, Louisiana-Pacific has a net cash position of $520 Million (cash minus total debt).
Financial strength indicators show that the company has a Piotroski F-Score of 8, an Altman Z-Score of 6.11, and a Beneish M-Score of -2.62. All of which illustrate that the company remains financial strong.
If we consider that Louisiana-Pacific currently has a market cap of $3.982 Billion, when we subtract the net cash totaling $520 Million, that equates to an Enterprise Value of $3.462 Billion.
If we move over to the company’s latest income statements we can see that Louisiana-Pacific has $588 Million* in trailing twelve month operating earnings which means that the company is currently trading on an Acquirer’s Multiple of 5.89, or 5.89 times operating earnings. That places Louisiana-Pacific squarely in undervalued territory.
The Acquirer’s Multiple is defined as:
Enterprise Value/Operating Earnings*
*We make adjustments to operating earnings by constructing an operating earnings figure from the top of the income statement down, where EBIT and EBITDA are constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–income that a company does not expect to recur in future years–ensures that these earnings are related only to operations.
It’s also important to note that if we take a look at the company’s latest cash flow statements we can see that Louisiana-Pacific generated trailing twelve month operating cash flow of $484 Million and had $166 Million in Capex. That equates to $318 Million in trailing twelve month free cash flow, or a FCF/EV Yield of 9%.
In terms of Louisiana-Pacific’s annualized Return on Equity (ROE) for the quarter ending March 2018. A quick calculation shows that the company had $1.605 Billion in equity for the quarter ending December 2018 and $1.672 Billion for the quarter ending March 2018. If we divide the combined total of both numbers by two we get $1.638 Billion. If we consider that the company has $426 Million in net income (ttm), that equates to an annualized Return on Equity (ROE) for the quarter ending March 2018 of 26%.
Other considerations regarding Louisiana-Pacific include the company’s trailing twelve month revenue of $2.814 Billion, which is higher than any one of the full-year revenues posted in the past five years. The company’s net income of $426 Million (ttm) is the highest in the past five years, 9% higher than the FY2017 net income of $390 Million, and 184% higher than the FY2016 net income of $150 Million. Lastly, Louisiana-Pacific’s free cash-flow of $318 Million (ttm) is just 2% lower that the FY2017 free cash-flow of $325 Million, which was a record high in the past five years.
In summary, Louisiana-Pacific is trading on a P/E of 9.66 compared to its 5Y average of 55.59**, and an Acquirer’s Multiple of 5.89, or 5.89 times operating earnings. The company has a strong balance sheet with a net cash position of $520 Million and a cash-to-debt ratio of 2.38. Financial strength indicators show that Louisiana-Pacific is financial sound with a Piotroski F-Score of 8, an Altman Z-Score of 6.11, and a Beneish M-Score of -2.62. The company also generates a FCF/EV Yield of 9% (ttm) and has an annualized return on equity of 26% for the quarter ending March 2018. Louisiana-Pacific’s net income of $426 Million (ttm) is the highest in the past five years, 9% higher than the FY2017 net income of $390 Million, and 184% higher than the FY2016 net income of $150 Million.
Superinvestors Currently Holding Positions In Louisiana-Pacific include:
There are a number of superinvestors currently holding positions in Louisiana-Pacific including Jim Simons, Cliff Asness, Mario Gabelli, Chuck Royce, Joel Greenblatt, Steve Cohen, Lee Ainslie, Jeremy Grantham, and Paul Tudor Jones.
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